MSCI Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing is an annual report, not a standalone Q4 filing; unaudited Q4 results are noted below. MSCI provides investment indexes, analytics, ESG and climate research, and private-asset data and tools.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $2.044 billion | $1.695 billion | +20.5% |
| Operating income | $1.073 billion | $884.8 million | +21.2% |
| Operating margin | 52.5% | 52.2% | +0.3 percentage points |
| Net income | $726.0 million | $601.8 million | +20.6% |
| Diluted EPS | $8.70 | $7.12 | +22.2% |
| Adjusted EBITDA and margin | $1.197 billion; 58.6% | $971.5 million; 57.3% | +23.2%; +1.3 points |
| Operating cash flow | $936.1 million | $811.1 million | +15.4% |
Recurring subscriptions generated $1.426 billion, up 14.3%; asset-based fees were $554.0 million, up 38.6%; non-recurring revenue was $63.5 million, up 33.9%. Index represented 61.3% of revenue and grew 23.1%; Analytics grew 5.9%; ESG and Climate grew 49.2%; All Other—Private Assets grew 51.3%, including RCA after its September acquisition.
Cash and cash equivalents were $1.421 billion at year-end, compared with $1.301 billion a year earlier. Current assets were $2.143 billion and current liabilities $1.251 billion. Long-term debt carrying value was $4.161 billion, with $4.2 billion principal outstanding; the $500 million revolving credit facility was undrawn. Leverage and interest-coverage ratios were 3.28x and 8.27x, respectively, within stated covenant limits. Shareholders’ deficit was $163.5 million.
Changes, transactions and unusual items
- Revenue growth was broad-based, with particularly strong asset-based fees as average AUM in ETFs linked to MSCI equity indexes rose 47.7%. Year-end linked ETF AUM was $1.452 trillion.
- Run Rate increased 20.3% to $2.204 billion; net new recurring subscription sales rose 56.9% to $185.2 million. Retention Rate was 94.7%, versus 93.9% in 2020.
- MSCI acquired Real Capital Analytics for $949.0 million in cash. RCA contributed $22.1 million of post-acquisition revenue. Preliminary purchase accounting included $670.9 million of goodwill and $394 million of intangible assets; valuation assumptions were identified as a critical audit matter.
- Investing cash outflow was $1.036 billion, primarily reflecting the RCA acquisition. Financing cash flow was positive $229.5 million, including debt issuance and repayment activity.
- Debt refinancing and early redemptions generated $59.1 million in debt-extinguishment losses. A $16.0 million software write-off followed the decision to discontinue certain Analytics products. The company also recorded $8.4 million of right-of-use asset impairment.
- The effective tax rate was 15.4%, versus 12.3%, affected by discrete tax items, including $22.7 million of excess share-based compensation tax benefits.
Outlook, risks and contingencies
Management did not provide a specific earnings or revenue forecast in the supplied filing text. It stated that operating cash flows, existing cash and the undrawn revolver should be sufficient for operating needs and commitments for at least 12 months after filing and for the foreseeable future. A $1.04 per-share quarterly dividend was declared in January 2022.
Key risks include market declines or shifts affecting index-linked AUM and asset-based fees; client fee pressure, self-indexing and competition; concentration in BlackRock, which accounted for 12.7% of FY2021 revenue (93.6% of its revenue came from fees tied to its MSCI-indexed ETFs); reliance on third-party data and distribution; cyber, technology and product accuracy risks; evolving benchmark, ESG and privacy regulation; foreign exchange exposure; and debt and acquisition integration risks. Management said COVID-19 had not materially affected 2021 results, while noting continued uncertainty. Ordinary-course legal matters remain uncertain; management did not expect currently pending matters to have a material aggregate effect based on available facts.
The auditor issued an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective; RCA was excluded from the control assessment because it was acquired during 2021.
Important facts for investors to verify
- Whether recurring subscription growth and retention remain strong, particularly in ESG and Climate and Analytics.
- How much index asset-based fee growth depends on market appreciation, inflows, product mix and fee rates.
- BlackRock concentration and the terms, renewal dynamics and fee exposure of its index-linked business.
- RCA integration, realized growth and synergies, and the assumptions supporting its acquired intangible assets and goodwill.
- Debt maturities, refinancing costs, covenant headroom and capital returns relative to cash generation.
- The recurring versus unusual components of expense growth, tax benefits and reported earnings.